Verizon reviewing terms of Yahoo deal as sales dip

RyanKnutson

Verizon Communications Inc. on Thursday reported declining revenue and plunging subscriber growth, and said it is assessing whether it will need to renegotiate its acquisition of Yahoo Inc. after a major data breach.

Verizon's Chief Financial Officer Fran Shammo described the recently announced breach of 500 million Yahoo accounts as "extremely large."

He said the company is assuming that it will have a "material impact" on Yahoo, suggesting that the carrier will look to renegotiate the deal though he gave no indication Verizon intended to walk away.

Mr. Shammo said Verizon lawyers had their first call with Yahoo's lawyers this week and said evaluating the impact of the breach is "going to be a long process."

The carrier, which has sought to develop new revenue streams via acquisitions, in July said it would buy Yahoo's Web assets for $4.83 billion in cash, the biggest of a recent string of digital acquisitions. For New York-based Verizon, the deal is a key component of a digital media and advertising empire the nation's biggest wireless carrier is trying to build in hopes of taking on Alphabet Inc.'s Google and Facebook Inc.

At the same time, Verizon's wireless business is sagging as competitors gain strength. The carrier reported its second straight quarterly revenue decline after six years of growth. It also posted a 66% drop in net retail postpaid wireless subscribers from a year ago, down to 442,000, which is also 28% lower than in the previous quarter.

Shares, which were up 9% this year before the results, dropped 2.7% in early Thursday trading.

"We are executing in a very challenging competitive environment," Mr. Shammo said on a call with analysts.

Verizon, which has been facing rising competition from smaller rivals like Sprint Corp. and T-Mobile US Inc., has warned that earnings may plateau in 2016 as it works through changes it has made to keep its wireless plans in line with competitors. Sprint this week reported strong subscriber growth for the quarter.

On its wireless business, the carrier had a net loss of 36,000 postpaid phone customers compared with gains of 430,000 a year ago, a sign that a healthier Sprint and an aggressive T-Mobile are inflicting pain on their larger competitor. Postpaid churn, or the rate at which customers canceled service, rose 11 basis points to 1.04% from a year ago.

Mr. Shammo blamed some of the slowdown in subscriber growth on the recall of Samsung Electronics Co.'s new Galaxy Note 7 over issues with its batteries.

"We were off to a really good start with the Samsung Note 7," Mr. Shammo said. "And then unfortunately there was a total recall of that phone which has definitely impacted our growth because historically Verizon has always been the number one leader in high-end Samsung phones."

For the September period, revenue slipped 6.7% to $30.94 billion, below estimates for $31.09 billion, according to Thomson Reuters. Verizon posted a profit of $3.6 billion, down from $4 billion last year.

On Thursday, the company backed its forecast of earnings for 2016 -- excluding a 7-cent per-share dent from the work stoppage during a union strike -- to remain flat with 2015.

Verizon has been shifting its wireless customers to noncontract plans that have a cheaper monthly service rate but require customers to pay full price for their device, usually in installments. The percentage of phone activations on installment plans rose to 70% from 67% in the second quarter. Verizon said it expects that rate to remain consistent in the fourth quarter.

Write to Ryan Knutson at ryan.knutson@wsj.com and Anne Steele at Anne.Steele@wsj.com

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